Cavendish has reiterated its 'buy' recommendation and 50p price target on RC Fornax PLC (AIM:RCFX), the defence engineering consultancy, following first-half results that the broker described as showing a "substantially improved commercial path."
The 50p target implies more than 500% upside from the current share price of 8.2p, reflecting Cavendish's view that the market is not yet pricing in the company's growing framework participation and the structural tailwinds from rising UK defence spending.
The broker noted that first-half revenue of £2.2 million was in line with expectations and 40% ahead of the preceding second half, with an average 22% month-on-month increase in revenue during the period demonstrating rebuilding order conversion momentum.
Gross margin improved to 31% from a restated 27.5% a year earlier, driven by a higher proportion of outcome-based services, which accounted for 72% of revenue compared with 52% in the prior year, in line with the strategy set out at the company's initial public offering.
Cavendish acknowledged that the first-half operating loss widened to £0.9 million from a small profit a year earlier, but attributed this to deliberate investment in headcount to support anticipated contract conversion in the second half and beyond, with headcount rising from 11 to 17 during 2025.
The broker highlighted several operational milestones, including RC Fornax's unconditional acceptance onto the Aurora Engineering Partnership's Evolve framework, which is the Ministry of Defence's primary route for procuring engineering services, and a contract win with a UK public sector space client that supports the strategy to diversify beyond core MoD work.
Cavendish forecasts revenue of £5.8 million for the full year to September 2026, rising to £8.5 million in 2027, with the company entering the second half with visibility over more than £5 million of full-year revenue.
The broker expects a return to EBITDA profitability as revenue scales through the second half and into the following year, supported by improving procurement clarity and the government's commitment to raise defence spending to 2.5% of GDP by 2027.